MOSCOW Forget Arctic oil that may not be produced for decades; the unravelling of the deal between BP and Rosneft is all about controlling cash flows and potentially huge value as Kremlin Oil goes global.
"Komu vygodno?" -- who benefits -- is the play. It's why BP and Rosneft want to save their proposed $16 billion share swap, even at the cost of abandoning their offshore oil hunt, to fend off the tycoons who own half of BP's Russian venture TNK-BP.
It's also why TNK-BP's TNBP.MM oligarch shareholders are dug in for a long fight to secure their slice of future profits.
But first a more pressing, and quintessentially Russian, question has to be answered: "Kto vinovat?" -- who is to blame?
BP CEO Bob Dudley erred in failing to brief Prime Minister Vladimir Putin and his energy tsar, Rosneft Chairman Igor Sechin, on the finer points of the TNK-BP shareholder pact that triggered the legal challenge to the deal.
The mistake is all the more surprising given Dudley's past experience as TNK-BP boss in dealing with the firm's oligarch shareholders -- Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik -- who play hard and play to win.
"Today it's all about reputation," said Artem Konchin, oil analyst at Unicredit in Moscow. "BP took a dive, not because of diminished prospects for growth, but because of what people perceived to be a miscalculation."
It's too early to predict the most extreme outcomes: Rosneft dumping BP and finding another deepwater partner, or the oligarchs facing the full force of Kremlin pressure to get out of the deal.
Yet based on Sechin's first reaction, it's the oligarchs who have more reason to worry. He declared himself "satisfied" with BP as a partner, and reiterated a threat to sue anyone who stops the deal from happening.
Sechin, who is also deputy prime minister, said Rosneft was not in talks to buy out TNK-BP's Russian partners who, according to unsourced press reports on Friday, have slapped a $30 billion price tag on their stake.
For now eyes will be on how the arbitration panel that blocked the deal rules on BP's request for an opinion on whether -- independently of the offshore pact -- it can swap 5 percent of its stock for a 10 percent stake in Rosneft.
Sechin locked on to that issue: "As a matter of principle, the share swap deal and offshore (development) are not linked," he told reporters.
WHO BLINKS FIRST?
The oligarchs appear to have a watertight legal case, based on their argument that the BP-Rosneft deal violates the right of first refusal enshrined in the TNK-BP shareholder agreement.
"I think the cleanest thing is for Rosneft, if it wants to start developing its offshore acreage and resource potential, is to choose a different partner," said Sanford C. Bernstein analyst Oswald Clint.
Yet BP and Rosneft still see a way out.
They argue that the shareholder agreement would not apply to a share swap alone. Should the arbitration tribunal find in favour, the oligarchs' resistance could crumble, analysts say.
"If the judges tell them that the equity swap is OK, then we could see AAR capitulate faster," said Unicredit's Komchin, referring to the Alfa-Access-Renova consortium that represents the Russian partners.
If the court throws out BP's request, then the tycoons' bid to insert TNK-BP into the share swap could come back into play.
No deal, said Sechin: "As you know, TNK-BP shares are not traded in New York, London or Frankfurt and from the standpoint of an asset swap, are not under consideration."
Whatever the outcome, it's clear that TNK-BP, a throwback to the primitive capital accumulation of the 1990s, no longer fits into a Russian strategy that requires action now to stop a 'peak oil' scenario from materialising in this decade.
A government oil strategy paper warned last year that, even if oil taxes are reformed, the world's largest oil producer could see output peak in 2018 before it enters a steep decline.
Finds matching those in Brazil's deep Atlantic waters will be needed to sustain output, and that's why Russia is partnering now with the likes of BP, Exxon (XOM.N) and Chevron (CVX.N) to hunt for oil offshore.
The bigger picture is that Rosneft, which has 23 years of oil reserves at current production rates, can boost margins if it can win easier tax treatment in Russia and diversify abroad.
BP, still reeling from the Gulf of Mexico oil disaster, must book new barrels on top of those it gets from TNK-BP, which accounts for a quarter of its equity output of oil and gas.
Rosneft now has a market capitalisation of $101 billion, compared to BP's $144 billion, but is valued at half of BP in the proposed share swap. The tables could be turned a few years down the line if the two companies deepen their cross-ownership.
(Writing by Douglas Busvine, Additional reporting by Sarah Young in London; editing by Sophie Walker)